DOL rule change that impacted Annuity IRAs from employer plans

[scagnt83]

agree with your premise, but are you sure the average annuity across all products currently is paying the producer 6%? Many MYGA are 1.5-2.5% these days. Sure, some FIA & VA are higher than MYGA. FIA & VA/RILA would have to be paying an average commission of 7.5-8% on the 71% of the market they occupy to offset the 2% or so paid on MYGA/SPIA that is 27% of the marketplace LIMRA stats released last week for the $59B in sales for 4th Qtr 2020:

$ 8.4B RILA Variable Annuity (14.3%)
$19.2B Variable Annuity (32.8%)
$14.1B Fixed Index (24.1%)
$13.7B Fixed Deferred(MYGA) (23.4%)
$ 2.1B SPIA/DIA (3.6%)

MYGAs certainly do not pay 6%. But most Qualified Funds from a 401k are not going into MYGAs.

They are going into FIAs and VAs mostly. And I am 100% certain the average comp on those is 5% range.

And since Income Riders are being used on a lot of that money, that means more 10y products are being used vs. short term.

So that puts the average comp at 6% for the group of products we are really taking about being used here.

Now MYGAs average 2%-3%. But very few people are taking 401k funds in the market and putting them into a MYGA yielding 2%. Also, there are a lot of MYGAs being sold in bank channels, which I dont really count as true agents in the field selling annuities, since that is 99% CD money.

So yes, for the products being used for most 401k transfers, the comp ranges from 5%-8%.

 

[scagnt83]

& most states have already adopted the NAIC Best interest for Annuity that requires the comp disclosure, conflicts of interest & "why the product is being recommended".

I actually am a big fan of those specific changes.

How on earth can a carrier perform suitability without the agent saying why the product is recommended and why it benefits the client??

Why would an agent NOT want to state, in their own words, why a product is in the best interest of their client, and how it will benefit their clients situation and meet their goals?

And why would an agent NOT want to see in their clients words, why they feel the product is in their best interest and how it meets their goals?

This regulation added literally 2 sections to the app, with a place for the agent to state that and the client to state that. Its a very good example of common sense regulation at work.

 

[DHK]

And why would an agent NOT want to see in their clients words, why they feel the product is in their best interest and how it meets their goals?

I've done switch letters in the past. The client always asks "what do I write?"

It may also not necessarily lend itself well for electronic applications. Just a functional thing, not a big deal. However, I would probably just end up giving the client some bullet points to copy/paste into the app via email - as long as the client agreed with my points for them.

 

[Allen Trent]

So that puts the average comp at 6% for the group of products we are really taking about being used here.

good point--I had gotten side tracked on the source of the funds in the thread example

 

[Allen Trent]

I actually am a big fan of those specific changes.

How on earth can a carrier perform suitability without the agent saying why the product is recommended and why it benefits the client??

Why would an agent NOT want to state, in their own words, why a product is in the best interest of their client, and how it will benefit their clients situation and meet their goals?

And why would an agent NOT want to see in their clients words, why they feel the product is in their best interest and how it meets their goals?

This regulation added literally 2 sections to the app, with a place for the agent to state that and the client to state that. Its a very good example of common sense regulation at work.

Agree. However, that state level requirement may not make the agent or bank employee a fiduciary under the DOL test because they are advising & giving a reccommendation. if they are considered a fiduciary, they are required to fully analyze entire client & entire existing client costs/options of their current 401k plan, next employer 401k plan in comparison to anything the agent is offering or there is in the marketplace. most life only insurance agents dont hold licenses or E&O to cover that level of standard.

Example--Client comes in State Farm office saying I left my employer & I want to put $50,000 into something that cant lose money. If agent has to state the reccommendation for NAIC approved Annuity app, have they now given advice that falls under the DOL ERISA to IRA fiduciary standard. I sure hope there are exemptions for some of this, otherwise, all situations will be pushed out to fee based planners & there is not enough to serve all individuals or especially the small & lower account values & many cannot handle robo or online advisors.

I believe there is room for all & go after abusive behavior, but if the DOL doesnt make room for anything less than fiduciary standard, it could be interesting. The industry doesnt have the pull with the current branches of government to have carve out or exemptions

 

[scagnt83]

...which then circles me back to the DOL issue on ERISA to IRA rollover. how do you state a required agent recommendation if you then violate the DOL. Do you just say "they called me, I told them what my product does & I have no idea where their money is coming from" after having to fill out 2 pages of Consumer Asset profile pages required by NAIC best interest regs in most states showing where all their assets are

This is why I started this thread as the state adopted NAIC best interest regs appear to force advice/recommendation that triggers fiduciary status under the federal DOL item on ERISA to IRA/etc

I think you are approaching this from an advisory mindset and not an agent mindset.

The agent asks the client about goals, needs, wants, then situation.

Then they present their product and it's benefits. And point out how it's benefits match up with the clients stated goals/needs/wants/etc.

The agent is saying "I have this thing that does x/y/z".
"You are looking for a solution that does x/y/z".
"Are you interested in this solution for a portion of your assets?"

That conversation does not even touch where the money is coming from. The client stated what they want, you showed the features of what you have, the client decided to purchase that product. The agent never said "you should move money from your 401k to this AnnuityIRA". The agent just said "I have this AnnuityIRA that does this, is that what you are looking for?" The agent proposes a product with a set of benefits, they dont tell the client to do anything.

But its a fine line at times. Especially when they start asking questions about their current 401k. That is when an agent has to fall back and talk about Qualified Plans in general, not about that specific Qualified Plan. The agent cant look at their 401k statement and point out the expense ratios and plan expense rate... but if the client asks, the agent can tell the client to call the 1800 number and ask... and they can do it right then during the meeting so they (they client) has that info. Then the client can compare what they have, with what you are offering, and make their own decision.

If the client asks "what should I do", the agent must say something to the extent of "you just have to decide which solution gives you the most benefits." One idea is to have the client write down a pro/con list in their own words to help them make the decision.

 

[Allen Trent]

I think you are approaching this from an advisory mindset and not an agent mindset.

The agent asks the client about goals, needs, wants, then situation.

Then they present their product and it's benefits. And point out how it's benefits match up with the clients stated goals/needs/wants/etc.

The agent is saying "I have this thing that does x/y/z".
"You are looking for a solution that does x/y/z".
"Are you interested in this solution for a portion of your assets?"

That conversation does not even touch where the money is coming from. The client stated what they want, you showed the features of what you have, the client decided to purchase that product. The agent never said "you should move money from your 401k to this AnnuityIRA". The agent just said "I have this AnnuityIRA that does this, is that what you are looking for?" The agent proposes a product with a set of benefits, they dont tell the client to do anything.

But its a fine line at times. Especially when they start asking questions about their current 401k. That is when an agent has to fall back and talk about Qualified Plans in general, not about that specific Qualified Plan. The agent cant look at their 401k statement and point out the expense ratios and plan expense rate... but if the client asks, the agent can tell the client to call the 1800 number and ask... and they can do it right then during the meeting so they (they client) has that info. Then the client can compare what they have, with what you are offering, and make their own decision.

If the client asks "what should I do", the agent must say something to the extent of "you just have to decide which solution gives you the most benefits." One idea is to have the client write down a pro/con list in their own words to help them make the decision.

I would hope that stays the case, but the DOL info points to expectations of greater standards on the ERISA to IRA rollover more than just run of the mill assets of cash, etc